RS

MEMBER DIARY

For Romney to Win: Part 5 (Income Inequality)

No one on the Right denies that there is an income gap between the haves and the have nots in this country, nor do they deny that it is getting worse. In fact, 66% of conservatives polled said it was a problem with another 21% characterizing it as a crisis. So, 87% of conservatives are acutely aware of the income inequality problem in America. There are three differences between Republican and Democratic solutions. First, Republicans have proposed solutions that help everyone rather pander to select groups. Second, Republicans do not camp out in city parks throughout America. Third, Republicans wish to create the environment for opportunity for all rather than wealth redistribution through the tax code.

Federal laws, codified in Dodd-Frank, regarding executive pay is one thing that amounts to window dressing. Taken together, although apparently obscene, the bonuses awarded at failing financial institutions is more a public relations problem rather than a fundamental reason behind the financial collapse. It riles the anger of conservatives also that executives of AIG and the banks that needed a federal bail out received massive bonuses for what amounts to failure. That, essentially, is a perversion of capitalism- rewarding failure. But, that was hardly the reason for the financial crisis of 2008.

Instead, the Democratic solution is to adopt a generally populist argument of soaking the rich. One can only draw so much blood from a stone before the stone rolls on. It has happened in microcosm in states like California and New Jersey and it will happen on a national scale. Repeatedly, there have been studies demonstrating that one does not increase federal revenues by increasing taxes, but by expanding the tax base. This does not translate into taxing workers in poverty, as many liberals would have you believe. No less an iconic Democratic leader than John F. Kennedy realized this with his across-the-board tax decreases which ushered in a period of rapid economic growth which benefitted everyone across the political spectrum. Ronald Reagan and George W. Bush did likewise. That is one place to start.

There is no shortage of reasons postulated for this income gap. After World War II until approximately the 1980s, there was an actual shrinking of the gap, but then it stopped and widened. Many have blamed the Reagan tax cuts, but that is too knee-jerk an explanation more apt to be given by the likes of Paul Krugman. Lax immigration policy has been blamed although there is a plethora of studies that indicate illegal immigrants do nor depress wages overall, but they certainly have an effect on wage depression at the lower end of the spectrum. A third reason given is the decline of manufacturing in America since these were generally well-paying union jobs forever lost. In a related idea, some believe that offshoring jobs through trade agreements have had an effect. Practically every study out there does indicate that as worker productivity has increased, income levels have stagnated or decreased thus widening the gap. Through mechanization and other factors, employers have learned that they can get the same or greater amount of output from workers with less. The recent recession underscored this effect. Despite massive layoffs and loss of jobs, productivity remained fairly constant probably because those who retained their jobs worked even harder to keep them although they may have lost on salary increases.

In all likelihood, the reason is a combination of “all of the above” working to stagnate wages. The solution includes a multifaceted attack on the causes that need not be done piecemeal, but move forward together. It is one thing to argue that revamping the tax code coupled with alleviating the regulatory burden on business are the only answers. This is the traditional conservative mantra and there is nothing wrong with this. These two reforms lay the broad groundwork for overall improvement. However, they alone will not shrink the income gap.

Instead, there is one constant indicator of lifetime income and that is education. Romney must stress that K-12 education must be divorced from federal control and restored to state and local authorities. About 9% of any school district’s budget is federal money, yet the federal government exerts an enormous amount of control for that minimal investment. Also, the output has either stagnated or declined. However, where the government can help is by rewarding our best and brightest students with grants for higher education in high need and skilled occupations. Furthermore, job retraining programs should be diverted from the Labor Department to the Education and given as block grants to states.

Secondly, a coherent immigration policy that addresses the need for low-skilled and high-skilled labor is a must. However, incorporating unions in the discussion would be counter-productive towards these goals. Third, the United States needs to enter into more trade agreements on a bilateral basis rather than going through the W.T.O. or GATT. Too many agreements are held up over concerns regarding workers and environmental issues instigated by special interest groups here. We cannot and should not try to force our environmental and labor laws upon foreign countries. Studies have shown that as developing countries are lifted out of poverty, they then develop the social safety nets, labor reforms, and environmental laws we take for granted here. Along these lines, aid to Africa can almost be eliminated if we had free trade agreements with African nations. Additionally, although I doubt that any politician, including Romney, has the balls to do so, free trade with Europe is held up by agricultural subsidies here in the US. We can (1) save money by phasing them out and (2) increase the trade of American agricultural products to Europe.

The Liberal/Democratic solution is to lower the wages from the top in order to even things out. The conservative/Republican solution should be to lift the lower wages up since that benefits everyone. The usual solution is to do both, but that is an artificial narrowing of the gap. In that scenario, the rich are taxed in order to enhance the social welfare programs for the lower earners. In fact, that is what we see now. A select small percentage of the higher earners are providing the revenue to partially pay for the increase in food stamps and other welfare programs for the lower wage earners. In effect, the current system creates a system of slavery to government largesse.

Romney needs to articulate this policy in words the average Joe can understand. He must stress the fact that his policies and his Administration will be one that tries to lift the fortunes of everyone, not just the select few at either end of the wage spectrum. He needs to be honest and note that there will always be an income gap, but that his ideas are the best solutions for the long- and near-term and would be more based on the character of America rather than the European-style welfare state Obama envisions.

It is understood that Romney has a public relations problem here given his personal and business past. Personally, I would rather have the former head of Bain Capital as President rather than a community organizer. But, Romney needs to surround himself with people who have worked in the real world at all levels, not just egg-headed intellectuals (like Obama). It does not mean rolling up your sleeves and joining a chambermaid in turning down a bed for a photo opportunity, but he clearly needs to be among the “regular folk” everywhere, listen to them, let them speak, explain his policies and how and why they will work, and speak and treat everyone with honesty. Absent a lottery win, chances are Conchita or Jose or Joe Blow will not be a millionaire, but maybe their children will and that opportunity will be greater with a President Romney. In the meantime, we are going to create the environment and smartly use the government wherever we could to make things better than they have been over the past four years. A perfect campaign slogan would be: “Freedom. Choice. Pride.”